This month's Double Feature: Cognitive Dissonance and Wishful Thinking, two thrillers about floundering Central Banks and frantic Ministries of Propaganda.

The global economy is now dominated by Cognitive Dissonance and Wishful Thinking on a grand scale. The push to convince us of "normalcy" and a "return to growth" are strongly reminiscent of the Phony Year of 2007, when the subprime mortgage meltdown was toppling the entire global credit market, yet we were constantly reassured by financial authorities that it was all safely "contained."

We were promised a happy ending to the second feature, Wishful Thinking.

As the second half of 2011 begins, the level of cognitive dissonance between what we're presented as reality by the central banks, media and government--that the "soft patch" is over and the "recovery" is once again full steam ahead--and what the data says is extreme.

All available evidence suggests that credit is tightening as fear awakens in the credit markets. To mention just one such point: as the excellent Acting Man financial blog noted recently, the yield on short-term Treasury bills is now negative, meaning that investors buying these bonds are paying for the privilege of having the U.S. Treasury as the counterparty.

This strongly suggests they care only for security, that is, getting their principal returned to them, and not at all for yield (interest on their cash). If the global credit markets were healthy, why would anyone choose a negative yield?

In Survival+, I used the word derealization to describe the disconnect between what we experience and what the propaganda/marketing complex we live in tells us we should be experiencing.

The Status Quo--in the U.S., in China, and in Europe--has staved off reality for a full 2.5 years since the 2008 global financial meltdown via by adding unprecedented sums of public debt to "solve" the crises of private overleverage, overindebtedness and malinvestment.

This "fix" has already failed, but the EU has bought a few months at best with the latest bailout of Greece's Kleptocracy.

Note that the time bought by each new "fix" is diminishing with every intervention. I have likened this process to the onset of diabetes, where the body's sensitivity to insulin declines even as the body attempts to overcome the desensitizing by producing more and more insulin. Eventually the system breaks down.

Massive, unprecedented interventions bought 2.5 years of bogus "recovery" 2008-11, but that level of intervention--roughly $100 billion a month in Federal Reserve "stimulus" and $130 billion in Federal borrow-and-spend stimulus a month--cannot continue at that pace, as it is destabilizing the entire system.

In the same pattern of reduced effect from greater applications of borrowed money, the EU bought a year of "recovery" with last May's bailout of Greece. Now the latest ECB bailout, which exceeds the previous bailout in size and complexity, is buying perhaps two months before the crisis reappears, like a 1950s movie monster, even stronger and more destructive.

This systemic decline in sensitivity to central-bank/State interevention suggests the end-state of "extend and pretend" and "mark to fantasy" is drawing nearer, as the next round of stimulus, quantitative easing, bailouts, etc. will buy considerably less time for the Status Quo than the last fix.

At some point, the announcement of a new bailout or Fed "fix" will boost spirits and markets for a few days rather than a few months. At the very end of this process, the announcement of the next "fix" will crash the credit and stock markets because participants will finally understand that the fixes are only floundering, last-ditch acts of desperation which have zero chance of actually working.

When Leon Festinger developed Cognitive Dissonance Theory in 1957 and coined the phrase, he had in mind a theory that would provide useful hypotheses for predicting irrational human behavior in unexpected situations. Since then the phrase has taken on "excess meaning" as philologists might put it.

In line with Festinger's original intentions for his theory it is not clear what a useful hypothesis could be developed for the present situation. He was fond of making predictions that once a person or group of people had committed themselves mentally and emotionally to a situation, they would discount contradictory information and only gather supporting information without a concern about it's validity - much like listeners to Fox News

the officers of this centrally planned empire have an interest in keeping it together, and are arrogant enough to think they can "centrally plan" the desired outcome while protecting their interests. in their minds, they still believe they have the force of inflation under their control.

the board of directors probably prefers the officers to succeed, but ultimately they are arrogant enough to believe they will not be materially affected or could benefit in any outcome. that's a fatal conceit. i'm sure most of the directors have realized the officers will not be able to control the force of inflation by now, but they aren't the ones selling it nor do they feel they have an interest in selling it.

The cycle of history will not be denied; it can only be staved off until, like a seized cog in a complex machine, the pressure builds and then forces a break, causing devastating damage to the rest of the machine.

At the very end of this process, the announcement of the next "fix" will crash the credit and stock markets because participants will finally understand that the fixes are only floundering, last-ditch acts of desperation which have zero chance of actually working.

I'd argue that the participants are already at the point of understanding this, and that they're all just willfully ignoring it, for no better reason than the fact that everyone else is also ignoring it.

Things won't really come crashing down until there's an inevitable misstep by the central economic planners which puts them down a dead end alley, with no further can-kicking room.

What do you think that "misstep" looks like? What are a couple of examples of what you think would represent the dead end alley that doesn't allow for more can-kicking? And for what it is worth, I'm not disagreeing at all (I know sometimes people ask questions when they are attempting to back someone into a corner... not the case here). I'm trying to picture how this unravels.

Who knows. Something that results in truly runaway inflation, supply chain disruptions for things like food or fuel, suspension of welfare benefits, rationing, something that really pisses off China, an overt grab by government at personal property or savings, etc. Whatever it is it's going to have to be enough to get people off their asses. While we all joke around about the Dancing With the Stars crowd, I think it's only a matter of time before people can't ignore what's happening because it's directly and noticably affecting their quality of life.

It can either be a controlled collapse of some kind, where TPTB are stuck making a move which they know will likely have a disastrous outcome, but which will play out on a known timeline with expected results (and which can be prepped for and spun accordingly), or something more unexpected and violent.

I'm certain we'll see it in the bond market or rate derivatives. At some point people will begin demanding higher rates (bond vigilantes) with enough strength to counteract Fed rate manipulation. When that happens, things will quickly unravel. How fast? I fear fast enough that I don't hold any stock or bonds out of fear I could get crushed before I know what's happening.

Everyone wants to keep dancing at the party as long as its going on but it seems many are dancing very close to the door fearing they could be the last out.

I have.............several times. But Charles Hugh Smith is older and wiser than me and he understands that short articles get wide exposure and long articles get dumped.

I'm still in first grade finger painting when it comes to writing, so Charles picked up my slack and moved on through. Short and to the point is what my first grade finger painting teacher always whispers in my ear as I ask for a 10th sheet of white construction paper and more paint. :>)

It is a remarkable condition. I think everyone has it. Holding a different view from within the safety net of your own worldview causes anxiety. Maybe its a defect that developed from the trauma of birth, of leaving the safety and sanctuary of the womb for the big bad world.

More like years of repeating the same lies until they are your only "truth". Generally speaking these folks have much trouble listening to contrasting viewpoints- to the point of neurosis. My own world crumbles if it is opposed or just simply broadened a little bit.

Nu-uh! This next "fix" will be different this time. It will work I tell you.

I know when I put myself into a debtor status in real estate, a car, and credit cards that all I needed to do was get into more debt for another car, added some more credit cards, and bought another home on the coast. I knew adding to my debt load would indeed lessen my debt load. This is a simple math equation of 2 + 2 = 1.

We will be teaching a course on this through all of the Ivy League schools during the start of school next year called "You Can Win With Debt."

It's funny you mention that. I once heard Donald Trump say that it's not how much money you have but how much you control. The idea is that he levered himself to the hilt and thereby became a player. That he has gone bankrupt several times seems inconsequential to him. It's an interesting tidbit, nonetheless. I doubt most Americans can see the difference between taking on debt for the purpose of investment versus taking on debt in order to sustain consumption.

This systemic decline in sensitivity to central-bank/State interevention suggests the end-state of "extend and pretend" and "mark to fantasy" is drawing nearer, as the next round of stimulus, quantitative easing, bailouts, etc. will buy considerably less time for the Status Quo than the last fix.

Tyler I agree. It'll buy less time for keeping the status quo. But I think we'll see a paradoxical rise in sensitivity in terms of the destabilizing effects in the global macro economy. You hit it on the nose in your Biflation article earlier today: this is not your father's stagflation. I think it's much more unstable and new efforts by TPTB to stabilize the system, putting out fires with the money hose will have more de-stabilizing effects.

there's nothing 'they' can do to stop the unravelling. the fiat money system is disintegrating. some days, that looks like "deflation." other days, it looks like "inflation." but the simple truth is that the conditions required for a fiat money system have gone like the wind.

Right, give the heroin junkie a bunch of 8 balls to inject all at once just to keep from getting too sick. Hopefully, it wont be a massive overdose and death but with this Ponzi running at these all-time insane levels, who knows?

I've discovered that life is short, and I have a pair of grandiose, swollen balls that rather liked to tempt being kicked! Lately I've taken the tact of using a warped version of Rogerian dialogue (as in Carl Rogers) to slay the beast. My favorite mode is to approach crowds (family, friends, acquaintances, strangers) who are gathered in larger numbers (5 or more, the bigger the better) to give them the sensation of protection. I rarely if ever will inform them of the actual reality verbatim (unless they come to me the following days). What I do now is choose local physical examples and ask questions that I am resolute to never provide the answer in a way that would inflame their defense mechanisms. I post contradictions and feign ignorance. I repeat their comments with different words that bring new semantic meanings. They get to educate moronic me. Even if asked directly, and am tempted to be drawn into vivid revelation, I deny I comprehend the answer. I just say "I'm just asking you, I really don't don't know, I was hoping you'd know"). For example, I ask questions about that orange tree right outside the window. "What fruit would you pick first? Why?" Then sublimely change the subject matter from oranges, to... well... you get it. I have to stay strong and not let them suck me into being plain worded. The wily Janus faced dissonant need to earn their salvation! Examples of questions to ask can be easily discovered in the professions of anybody. Swallowing my ego, and repressing the urge to light myself as the fire of the glorious shining light of emancipation was difficult at first, however it got easier, especially when I realized that I was actually making a difference by not being such a pompous know it all pulsating vein brain intelligence of the universe!

Also, I go after the kids at get-togethers (ages 20 down to 6 are quite open to understanding the concept of devaluation). I insidiously shame the parents! It's fun, and the kids think I'm cool while the parents remain nothing but amused. I do it indirectly. I'll play games and tear part of a dollar off. I tell the kids if they can figure out why they don't want a torn dollar I'll give them a whole one. Let the wee ones onto such joy and the world opens up in opportunities.

By the way, I'm ready for those forwarded emails. I have my forwarder set up to immediately send them ORI's way! (as I don't get to reincarnate this time. This is my last stop.)

I know you have fiery robust neurons. Pronto! Get those synapses firing and tell us, specifically, with examples what and how you have communicated lately with those who need the knowledge and a slap of perception. Step on up. Lots of members (sitting in underwear only) and lurkers with unclogged eustachian tubes await your response. ; )

The clinic tells me that I am paying the price now for abusing my fiery robust neurons during the first 45 years, or so, of my life. I have been advised to wage the eustachian tube war on all except my closet loved ones. (I can count them on one hand)

It seems when every old and worn warrior hangs his sword, there comes a younger and stronger one to carry the fight forward. You seem to fit the part nicely. You and many here at ZH. I read and listen and occasionally cut-n-paste ZH to those few who would listen, and trust heaven to help the rest.

The world of the ZH comment section is very different from the emails I receive privately. Many people read ZH, but will not comment because of the brutality. And while many people tell me they need to hear the ugly truth, they have also told me they need to hear about how to cope with the isolation and daily emotional assaults. I need to learn as well so I decided to start writing about it.

""So that I can continue to increase my collection of hate emails. Passing 10,000 as we speak.""

I will give you a feed back of where I think you have been leading us. Let the 10,000 go and understand that there are more than 10,000 that may be gaining good stuff from reading you. The fact that you have kept count disturbs me.

You have an excellent mind that needs to be shared. Approval will not be 100%. Shake it off and rock on.

Yea I wish it were true, but the american sheeple wont even put their foot down and say NO to the TSA tyranny of getting their wife and kids strip searched SS style and then put thru full body cancer inducing scanners. Stand up? I dont think its in but maybe 1% of americans.

I am willing to Stand for / with My Fellow Brothers to try to stave off the attack on "We the Peoples" Constitutional Rights! Oops! I used a Key Phrase! I am now a person of interest to the FBI and all other idiots!

Do YOU! Believe in the Holy Bible? You are on the FED's watch List!

Do YOU! Believe in Gold over Paper? You are on the FED's watch List!

Do YOU! Exercise you 1st Amendment Rights? You are on the FED's watch List!

That is actually a double.. Mention the Constitution while exercising my 1st Amendment Rights!

That is Correct! Bring up the Constitution in America to Law Enforcement! and You are providing Law Enforcement with Probable Cause to Search / Harass / Stalk YOU!! FACT!!!

According to the Committee to Stop FBI Repression, the 14 activists’ personal belongings—including cell phones, papers and computers—are still under FBI confiscation. The federal law that criminalizes aid and comfort to a terrorist organization was upheld by the Supreme Court in June. “The court ruled 6-3… that the government may prohibit all forms of aid to designated terrorist groups, even if the support consists of training and advice about entirely peaceful and legal activities.” (Emphasis ours)

This means that no longer can Charlie Rose interview on PBS a member of Hamas (as he did this year). No longer can American peace activists, such as former President Jimmy Carter, send messages to Hamas urging compromise and reconciliation. Nor can an American Christian in the Mideast attempt to evangelize or even talk to a member of Hamas. It is now criminal to reason with a large number of the earth’s inhabitants who desperately need Christian faith and reason.

After the Supreme Court ruling, the Jewish Anti-Defamation League heralded the decision as a victory against terrorism. Actually, ADL was elated because it opened bolder possibilities for itself, as Israel’s PR representative, to broaden the definition of terrorism to include those who ideologically oppose America’s “ally in the war on terror.” Because moral and verbal opposition to Israel can be more damaging than financial or military contributions, ADL wants to make criticism of the Jewish state an act of sedition, punishable as a speech crime.

I don't necessarily disagree with you, but could you cool it with the cut-and-paste? I suspect most if not all of us have got your point, and it'd be worthwhile to get a little new material. If nothing else, a little rephrasing to keep things fresh might be nice.